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    Jan. 8, 2026

Institutional LPs’ Growing Concerns Over Retailization of the Private Funds Industry (Part One of Three)

Once merely a theoretical possibility, the retailization of the private funds industry has gained significant momentum of late. Fund managers are rapidly going to market with tailored retail vehicles, while SEC leadership and the current U.S. administration pursue measures to further improve retail access. Amidst that flurry of activity, some institutional investors are sounding alarms about potentially deleterious consequences of retailization on their interests. Whereas the private funds industry has long catered to institutional investors, many are now raising concerns about the future misalignment of their interests with those of GPs and retail investors. This first article in a three-part series delves into the market and regulatory efforts driving retailization, and how that is stoking fears among institutional investors. The second article will examine specific concerns about how retailization will affect everything from fund liquidity, governance rights and co‑investment allocations, with supporting insights from a white paper released by the Institutional Limited Partners Association. The third article will explore how the impact of retailization on managers’ operations will affect institutional investors, as well as mitigation tactics the latter can adopt to protect their interests. See our two-part series on retail distribution platforms: “Growing Popularity, Numerous Benefits and Operational Obstacles” (Sep. 4, 2025); and “Selection Criteria, Due Diligence Processes and Potential Pitfalls” (Sep. 18, 2025).

SEC 2026 Examination Priorities Highlight Classic Compliance Issues, Retailization Efforts and AI Oversight

The SEC Division of Examinations (Division) released its 2026 examination priorities (Priorities) – its first under Chair Paul S. Atkins – on November 17, 2025. As with previous annual priorities released by the Division, the Priorities contain a familiar focus on “bread and butter” issues affecting the private funds industry, including the fulfillment of fund managers’ fiduciary duties; the effectiveness of compliance programs; fee and expense allocations; and various types of conflicts of interest. Those are omnipresent concerns that fund managers should be fluent in considering and addressing. The Division’s focus is also evolving under Atkins, however, to address developments that the entire industry is grappling with anew. Some are permutations of ongoing issues, such as new compliance requirements under the amendments to Regulation S‑P within the longstanding cybersecurity risk area. Other areas and issues are comparatively newer, such as practices related to the oversight of rapidly evolving emerging technologies (e.g., artificial intelligence) and the simultaneous management of private funds and retail vehicles. To assist fund managers in using the Priorities to prepare themselves for potential Division examinations in 2026, the Private Equity Law Report interviewed several legal experts on the Priorities’ areas of emphasis. This article summarizes the key takeaways from the Priorities most relevant to private fund managers and the experts’ accompanying insights. See our coverage of the Division’s 2025 Priorities; 2024 Priorities; 2023 Priorities; 2022 Priorities; 2021 Priorities; and 2020 Priorities.

U.K. FCA Proposes Rules to Support Fund Tokenization and Direct Dealing

On October 14, 2025, the U.K.’s Financial Conduct Authority (FCA) issued a consultation paper (CP25/28) proposing new rules for fund tokenization and direct-to-fund dealing (Consultation Paper). The FCA aims to provide firms with more clarity and confidence to adopt tokenization in fund management, as well as confirm its rules are suitable for the future. The proposed rules reflect the FCA’s desire to be ambitious and flexible in supporting innovations, taking a “technology positive” approach that ensures the U.K. is competitive on an international level. The FCA’s proposals address four key areas: accelerating tokenization of authorized funds, direct dealing in authorized funds, advancing fund tokenization and supporting future tokenization models. The proposed rules would apply to Undertakings for Collective Investment in Transferable Securities management companies, U.K. alternative investment fund managers of authorized funds and depositaries of authorized funds. This article summarizes the key takeaways from the Consultation Paper. For coverage of other FCA initiatives, see “U.K. FCA Emerging Managers Survey Urges Broad Changes to Curb Retail Market Abuses” (Jul. 24, 2025); and “U.K. Regulators Propose Changes to AIFM Rules to Ease Compliance Burden on Fund Managers” (May 29, 2025).

Key Considerations in Secondaries Fund Financing Transactions

Secondaries fund managers may seek subscription and/or net asset value loan facilities to finance acquisitions and provide liquidity to investors. Although such financing facilities are familiar and widespread in the industry, there are certain complications from applying them in the context of secondaries funds. Those difficulties are largely rooted in limitations found in the underlying fund documents of the applicable LP interests, as well as certain consents that need to be obtained from those GPs. To highlight those and other issues, the Practising Law Institute hosted a panel on secondaries fund financing transactions. The program examined key issues associated with financing facilities backed by a secondaries fund’s portfolio of LP interests, including pledge and transfer restrictions; confidentiality provisions and lender due diligence; loan-to-value and concentration limits; and lender foreclosures. Moderated by Proskauer partner Matthew K. Kerfoot, the program featured Davis Polk partner David J. Kennedy; Fried Frank special counsel Abraham Rudy; Clifford Chance counsel Steven Starr; and Joel S. Kress, managing director in the Ares Secondaries Group. This article synthesizes their insights. See “Secondaries Unlocked: A Market Grown Up and Continuing to Evolve” (Nov. 13, 2025).

Benchmarking Fund Managers’ Adoption and Governance of Generative AI

Artificial intelligence (AI) – and generative AI (Gen AI) in particular – is being incorporated at an unprecedented rate into virtually all areas of the economy. Thus, it is not surprising that virtually all fund managers who participated in a study conducted by the Alternative Investment Management Association (AIMA) said they use Gen AI in their work – and most are increasing their use. In 2025, AIMA asked fund managers about their uptake of Gen AI, including their approaches to governance; policies and procedures; risks and limitations of Gen AI; training and hiring; Gen AI models; and use cases. It also asked institutional investors about their AI-related concerns and communications with fund managers. This article distills the key takeaways from AIMA’s study. See “Limited AI and Alternative Data Adoption for Legal and Compliance Efforts, According to Survey” (May 1, 2025).

Cleary Gottlieb Welcomes Xin Florence Zhang As Private Funds Partner

Xin Florence Zhang has joined the New York office of Cleary Gottlieb as a partner in the firm’s private funds and sponsor solutions groups. She focuses on advising sponsors and investors on complex private funds and asset management transactions, including GP stakes, GP seeding, GP‑led transactions and asset management M&A transactions. See our three-part series: “Key Catalysts Behind the Emerging Trend of PE Spinouts” (Oct. 30, 2025); “Non‑Solicitation Clauses, Track Record Portability and Other Obstacles to PE Spinouts” (Nov. 13, 2025); and “Economic and Operational Terms of PE Spinouts and Subsequent Challenges” (Dec. 11, 2025).

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